Top Portfolio Rebalancing Bots

Bots have become synonymous with buying and selling of financial assets at the correct time. These bots use strategies based on their own algorithms to buy, sell and hold your financial assets keeping your portfolio balanced and healthy.

Talk about asset investing on autopilot.

This article specifically looks at rebalancing bots, what they are and what they do, and their advantages and disadvantages. Let’s start by looking at what they do.

Role of Portfolio Rebalancing Bots

A rebalancing bot uses a rebalancing strategy to increase revenue and reduce risks and losses between selected assets. The bot adjusts the weightings of different classes of assets in an investment portfolio. As a result, you have the desired level of risk, and your portfolio is a mix of investment assets suitable to your risk appetite and investment goals. Portfolio rebalancing bots are a great tool to your portfolio management strategy.

When you don’t rebalance your portfolio regularly, you leave yourself open to volatility in your investments. Also, you are open to more risks than you are comfortable with.

But a portfolio rebalancing bot makes rebalancing your mix of investments smoother even as your asset prices drop and surge at different times. They do this by periodically selling or buying assets in order to maintain the original asset allocation.

Typically when you first invest, the assets in your portfolio tend to be proportional, meaning each asset has the same value as the next. But you will notice that with time there is an imbalance as one asset’s dollar value increases. As a result, that asset represents the highest value of your total asset capital. Rebalancing optimizes your entire investment portfolio by selling such assets that have increased in value and redistributing the funds to assets that need a little help.

The bots will take the profits from the sale and invest them in struggling assets to bring them back to their original levels while creating room for more profits.

How Does A Rebalancing Bot Work?

The rebalancing bot works when an asset’s price is moving downward. The bot is prompted by the decreased value of one asset to rotate another asset in the portfolio and use the proceeds to boost the struggling asset.

If the struggling asset is doing very badly on the market, the bot will sell it off and reinvest the money into a high achieving asset. 

So rebalancing bots rebalance all the assets in the portfolio.

Advantages of Portfolio Rebalancing Bots:

They use proven algorithms to effect buys and sells

They do not hold on to non-profitable assets as humans would out of sentiment

They continuously conduct technical analysis and subsequently actively change asset allocations to match the desired allocations

They limit exposure to risk so that both future losses and gains of your investment remain calibrated

They improve portfolio diversity by redirecting sales profits to more assets. A diverse portfolio allows you to compensate for lost assets.

Selling assets that jump too high makes room for other assets

Disadvantages of portfolio Rebalancing Bots:

The risk mitigation aspect of portfolio rebalancing relies heavily on the momentum of high performers rising and low performers falling to determine sales and buys. But the market doesn’t always follow this pattern, and the momentum may shift, making it difficult to maintain or restore the original asset allocation.

Due to changing market conditions, the bot cannot guarantee that higher performers won’t fall and poor performers won’t rise. The bot may end up directing funds to an asset that eventually fails outstandingly, so you go at a loss.

Why Are Portfolio Rebalancing Bots Good at What They Do?

Rebalancing your asset portfolio is not a simple task. It is a complex process requiring complicated strategies to identify the timing for selling and buying the assets and calculating the portfolio balance.

Remember, the portfolio rebalancing bots are emotionless machines.

Unfortunately, emotions hold humans back when trading because we tend to make emotional decisions. The emotionless approach makes these bots good at their actions because they make impartial decisions.

For example, during market crashes, people tend to want to sell everything they own to salvage their financial situation and liquidate their assets before it is too late. This emotional move could backfire and leave them in an even more vulnerable financial position. But bots, using strategies based on indicators, thresholds, and other important algorithm-based factors, rebalance your investment portfolio to make the best of the market conditions without panicking.

Sometimes, you may want to hold on to an asset because you are fascinated by how it looks on paper. However, it generates a lackluster response, and demand for it is very disappointing, and it must be discarded as soon as possible. Bots take such decisions with no regret because the asset doesn’t generate profits, so it is not needed in the investment portfolio.

Portfolio Rebalancing VS HODL

HODL is an acronym for the term “Hold On for Dear Life”, which is a widely used concept in the cryptocurrency community referring to not selling your digital assets even during extreme price and market changes. This strategy requires you to buy and hold on to your crypto assets indefinitely and not sell even if the markets become volatile or crash. It follows the traditional buy-and-hold strategy, where investors hope to maintain a relatively stable portfolio in the long term despite short-term market fluctuations. 

Many people prefer rebalancing over portfolio rebalancing because it offers opportunities to diversify and make profits instead of holding on to a stagnant asset in a risky trading environment. Portfolio rebalancing is an aggressive way of trading, while HODL is a passive option.

The Emotionless Traders

Portfolio rebalancing bots are known as emotionless traders. Using these bots will allow you to relinquish control of the rebalancing task and rely on strategies that have been proven to work for many traders.

Trading psychology is a thing where traders are encouraged to have the right trader’s mindset to help them maneuver the murky waters of trading financial assets. The main components of trading psychology include containing emotion, exercising discipline, and thinking quickly. Unfortunately, many people find it hard to master these skills, putting their assets at risk. If this is you, don’t worry, emotionless traders, AKA portfolio rebalancing bots, are your best trading partners.

Trading psychology requires you to keep two main emotions at bay: Fear and greed. These are the two driving forces behind sentiment in trading. Luckily for the human race, which is known for its penchant for greed and susceptibility to fear, rebalancing bots do not suffer the same shortcomings, making them a great resource for rebalancing investment portfolios.

There are quite a number of portfolio rebalancing bots software available that you can use. Here are the best crypto portfolio rebalancing bots on the market and what they offer traders. These bots promise ease of trading and trading anywhere and anytime.